The week: Temasek stays the course as portfolio value hits record

Every year, Temasek Holdings organises an annual review, taking stock of its recent performance and sharing its investment outlook. The briefing is usually presented by a panel comprising the state investment firm’s senior management executives. In the last two years, it has been led by Dilhan Pillay, CEO of Temasek International, along with several of his colleagues. But not this year.

Pillay’s presence — or absence in this case — is of particular interest given that he will succeed Ho Ching, the wife of Prime Minister Lee Hsien Loong, as Temasek’s CEO and executive director come Oct 1. This will be in addition to his current role as CEO of Temasek International, in which he will remain. His thoughts and views may indicate how Temasek will navigate an increasingly challenging environment amid secular trends.

How would Temasek forge ahead under Pillay’s leadership? According to Nagi Hamiyeh, Temasek International’s joint head, investment group head, portfolio development, the state investment firm is not likely to see a major shift in its strategic direction. He believes that Temasek will continue to stay the course, led by a team of senior management executives.

“So, there is no one person that makes any one decision. We all work collectively together through committees [and] participation. And we’re all part and parcel of this journey going forward. So, I don’t believe there will be much change,” Hamiyeh said at the Temasek Review 2021 briefing on July 13.

Ho, who will step down on Oct 1, highlights that the team taking Temasek forward into the “2030 world” has been the core of the state investment firm’s “journey” over the last 10 years.

“They have learnt to own the morning after, to embrace new ideas, welcome new faces and build new capabilities systematically. They have learnt to take on difficult trade-offs, and stay the course, unfazed by the peaks and troughs of markto-market gains and losses,” she wrote in a Facebook post on July 14.

Still, Temasek will have its work cut out for it. Inflation is expected to pick up pace, especially in the US, which would impact economies and financial markets. Technology advancements continue to disrupt the status quo, forcing industries and companies to innovate or exit.

Geopolitical tensions could flare up again as the US and China have yet to resolve their differences for global supremacy. And with climate change prevention and sustainability gaining traction, carbon intensive investments are no longer deemed sexy. As such, the state investment firm may find it difficult to repeat or even outdo its current performance.

How would Temasek position its portfolio going ahead? Hamiyeh concedes that everyone is concerned about inflation. But he believes it is “transitory”, though it could last until next year. In such a scenario, he reckons that central banks will tighten their respective monetary policies.

As to managing Temasek’s portfolio, Hamiyeh emphasises that the state investment firm does not recalibrate it on a m-o-m or y-o-y basis. Rather, Temasek adjusts its portfolio on a long-term basis. “We believe that the portfolio is well balanced between value, cyclical and yield stocks. And that should be a good portfolio that we will calibrate over time to sustain the reversal in policies when it happens,” he says.

Notably, Temasek aims to shape its portfolio around four structural trends. It believes that digitisation and sustainable living are two trends that will have a pervasive impact across many sectors. On the other hand, trends in the future of consumption and longer lifespans reflect structural shifts in consumption patterns and the changing lifecycle needs of people and societies, it adds.

An example is BluJay Solutions, a privately held supply chain management company headquartered in Singapore. On May 27, US-listed cloud-based supply chain management technology provider E2open Parent Holdings announced that it was acquiring BluJay for US$1.7 billion ($2.3 billion) in shares and cash. BluJay shareholders will own about 22% of the combined company, while its current shareholders, Francisco Partners and Temasek, will have the right to appoint one director each to the board.

Mukul Chawla, Temasek International’s joint head, telecommunications, media & technology joint head, North America, says

Temasek is divesting a “small amount, but not all of it[s]” stake in BluJay. “That has allowed us to rebalance our portfolio,” he says.

What about Temasek’s locally listed portfolio companies? Several of them are undergoing or have undergone a restructuring exercise, leading to a particularly busy period for M&A professionals. They include Sembcorp Industries, Sembcorp Marine, Keppel Corp and CapitaLand. Will Temasek’s other locally listed portfolio companies undergo restructuring next?

Hamiyeh says that Temasek does not “interfere” in the day-to-day management of its portfolio companies. However, as an “active shareholder”, Temasek provides its “opinions”, he notes. “We work with our companies as partners to try to create value for every shareholder. [But] in terms of new restructurings, you’ll have to ask the companies in question,” he says.

For now, Ho will pass on the reins of Temasek to Pillay on a positive note. As at March 31, Temasek’s net portfolio value (NPV) had grown 24.5% y-o-y to $381 billion. This was almost twice its NPV a decade ago.

During the year, Temasek recorded a oneyear total shareholder return (TSR) of 24.53%, compared to –2% the year before. This was the highest since FY2010, post the global financial crisis.

Over an annualised 10-year period, it recorded TSR of 7% — the highest since FY2015. Over an annualised 20-year period, it registered TSR of 8% — the highest since FY2013. Since its inception in 1974, Temasek’s annualised TSR was 14%.

In comparison, the MSCI World Index registered a one-year total return of 45%. Over the annualised 10-year and 20-year periods, the index recorded total returns of 11% and 5%, respectively. Since 1974, the index’s total return was 8%.

During the year, Temasek’s investments surged 53% y-o-y to $49 billion, while divestments leapt 50% y- o- y to $ 39 billion. Both amounts were the biggest in the past 10 years. Over the decade, the state investment firm invested $276 billion and divested $212 billion, leaving it with a net investment of $64 billion.